OpenUCT :: Browsing by Author "West, Darron"

Browsing by Author "West, Darron"

Now showing 1 - 20 of 42

Open Access
A woman's worth: the impact of board bender diversity on company performance - a cross-country analysis
(2021) Jakoet, Nuria; West, Darron; Willows, Gizelle
Purpose: The study aims to investigate whether female representation on corporate boards impacts company financial and non-financial performance. Existing studies show conflicting results regarding the impact that female representation on the boards of directors may have on financial and non-financial performance, namely social and environmental performance. Studies suggest that critical mass may influence the impact that a woman on the board may have on company performance. Existing studies have observed behavioural changes in female directors when there are three or more women on the board compared to when there are less than three women on the board. The study will explore the effects of critical mass on the impact of board female representation on firm performance. Furthermore, studies posit that singlecountry studies contribute to conflicting results due to the influence of country-level factors. Country-level factors (including cultural norms, gender parity in terms of educational attainment, economic employment and opportunity) may influence the level of impact that female representation on the boards of directors have on company performance. Thus, this study explores whether country-level factors influence the impact of board female representation on company performance. Design: Using a linear mixed regression, an analysis of female representation (as measured by the percentage of women on the board and critical mass) of the top 100 listed companies from Australia, Japan and South Africa between financial and nonfinancial performance during 2016 to 2018 is performed. Both accounting and market measures are used to determine a holistic measure of financial performance. Nonfinancial performance is measured using a social and environmental performance score. To determine the influence of country level factors, interaction terms are used to compare the level of impact that female representation on the boards of directors have on company performance between Australia, Japan and South Africa. In addition, an analysis of the mean female representation by country is conducted to understand the existing level of female representation per country. Findings: The descriptive statistics show that female representation was highest in Australia with an average of 29% over the three-year period; South Africa was at 22% and Japan at only 7%, demonstrating that each country in the study has varying levels of female representation on the boards of directors. The regression results show that female representation on boards of directors, as measured by the percentage of women on the board, is shown to have a positive and significant relationship with accounting performance, market performance and social performance. Critical mass of female representation on corporate boards is shown to positively and significantly influence financial performance but has little impact on non-financial performance. Conversely, country-level factors do not significantly influence the level of impact of female representation on performance measures. However, the descriptive statistics suggest that country-level factors are shown to influence the number of women on the boards of directors. Originality and Value: This study is relevant to shareholders and stakeholders when considering board composition and the value of gender diversity on corporate boards for both financial and non-financial performance. In addition, this study aids the understanding of the current status of female representation on boards of directors. The study adds to the existing body of research by exploring the influence of critical mass and country-level factors on the impact of board gender diversity on company performance. Lastly, the study is relevant to regulators and policy-makers as it highlights factors which contribute to increased female representation on corporate boards.
Open Access
Active share, fund style and performance
(2014) Siddle, Richard; West, Darron
The South African unit trust industry was found to display low levels of Active Share compared to international levels. A sample of unit trusts, representing approximately 58.2% of assets under management in the South African general equity fund industry, was selected based on the availability of the information necessary to perform this analysis. The average Active Share demonstrated by the sample of unit trusts has decreased from 60.85% in June 2007 to 55.65% in June 2013. A fund flow analysis confirmed that fund managers' portfolio decisions are highly affected by the risk of outflows and possibility of inflows. Managers faced with a high risk of outflows and low possibility of inflows adjusted their Active Share by approximately double that of managers with a moderate risk of outflows and inflows. A similar result was found when comparing managers experiencing a low risk of outflows and a high possibility of inflows, to managers experiencing a moderate risk of outflows and inflows. Under varying market conditions, unit trusts exhibiting the highest Active Share and tracking error (concentrated stock picker) earned a significantly higher alpha than unit trusts exhibiting the lowest Active Share and tracking error (closet indexer). During the financial crisis and in the subsequent bull market to previous highs, concentrated stock pickers earned a significantly higher alpha than closet indexers. In bull markets breaking through previous highs, concentrated stock pickers earned the lowest alpha. The alpha earned by unit trusts exhibiting the highest level of Active Share was significantly higher than the alpha earned by unit trusts exhibiting the lowest level of Active Share. The benefit of distinguishing between truly active (concentrated stock picker) unit trusts and closet indexer unit trusts is clear.
Open Access
The Altman corporation failure prediction model : applied among South African medical schemes
(2014) Arens, Fanelo James; West, Darron
This study has a number of interrelated objectives that seek to understand and contextualize the Altman bankruptcy prediction model in the setting of the South African medical schemes over a ten year period (2002 to 2011). The main objective of this study is to validate the Altman Z₂ model amongst the medical schemes in South Africa; in terms of accurately classifying Z₂-scores of ≤ 1.23 and ≥ 2.9 into the a priori groups of failed and non-failed schemes. The average classification rates in the period 2002 to 2011 are as follows: 82% accuracy rate and 17.9% error rate. A linear trend line inserted in the graph shows the accuracy improving from 72% to 91% between the period 2003/2004 to 2011/2012. This outcome is consistent with the conclusion in previous studies (Aziz and Humayon, 2006: 27) that showed the accuracy rates in most failure prediction studies to be as follows: 84%, 88%, and 85% for statistical models, AEIS models and theoretical models respectively. Although this study validated the Altman model, further studies are required to test the rest of the study objectives under conditions where some of the assumptions are revised.
Open Access
An analysis of the appropriateness of the four funds approach for the taxation of life insurers in South Africa including a qualitative comparison to the recently enacted approach adopted in New Zealand and recommendations for improvement to the approach
(2011) Donaldson, Peter Allen; West, Darron
Section 29A of the Income Tax Act No. 58 of 1962 contains a special set of rules for the taxation of life insurers. These rules were originally enacted in 1993 and are commonly referred to as the four funds approach. The rules have remained largely unchanged since their original enactment despite ongoing changes in the life insurance industry in particular with regards to new product offerings.
Open Access
An analysis of the income tax treatment of realised gains and losses from the use of short positions in South African hedge fund portfolio fundamental paired trades
(2017) Wiese, Peter; West, Darron
This dissertation analyses the nature (capital or revenue) of the proceeds arising from the use of short positions in South African hedge fund fundamental paired trades. Hedge funds, which typically avail themselves of an array of alternative investment strategies such as short selling in addition to the traditional asset classes, were recently brought into the South African investment regulatory net. This was achieved by classifying regulated hedge funds as a separate category of collective investment scheme in terms of the CISCA. This categorisation brought regulated hedge funds into the ambit of section 25BA of the Income Tax Act which carries an important distinction between amounts of a capital nature and amounts of a revenue nature. Given that hedge funds may use short positions for both profit-seeking and risk-mitigation purposes, the resulting proceeds from short sales could be capital or revenue in nature from a tax perspective based on the surrounding facts of the trade. The onus of discharging the proof that the proceeds resulting from a short sale are capital in nature is significant. The South African case law emphasises the importance of applying the various principles to the specific facts of the case. The importance of the dominant intention of the trade is highlighted, given the potentially competing purposes of profit-seeking and risk-mitigation present. Factors that should be analysed in such a scenario include the overall portfolio positioning, the size of the long and short positions relative to each other, the degree of specificity of the risk that the short position purports to hedge against, the manner of re-investment of the short sale proceeds, the level of trading activity in the hedge fund, the level of short positions in the hedge fund, the absolute sizes of the long and short positions in the context of the overall portfolio, the exposure of the hedge fund to the long position after the close out of the short position, the manner of close out of the short position and the holding period of the short position. While the analysis reveals factors that may be indicative of capital treatment, the classification of short sale proceeds as capital or revenue in nature remains a challenging task to undertake due to the potentially wide variety of facts and circumstances and the potential for undesirable consequences should an incorrect classification be made. Consequently, improved clarity through the provision of de jure guidance as to the nature of short sale proceeds would be welcome.
Restricted
Cash flow optimazation through inventory management improvements at Atlantis foundries
(2013) Goebel Johanna Marita; West, Darron
Investor focus has shifted in last decade from a mere earnings related attention to a cash emphasis finding its expression in the frequent mention of proverbs such as "Cash is king" in daily newspapers. The realization that reported earnings are in a large extent subject to accounting decisions based on the applied GAAP brought cash increasingly in shareholder focus. Capital commitments in the manufacturing environment, as well as an original equipment manufacturer (OEM) buyer market in the global automotive components industry, cause corporations to focus on inventory management in order to improve their cash position. At the same time, tight delivery targets demand a higher delivery readiness at low stock at low stock levels from corporations. A case study on castings manufacturer Atlantis Foundries (AF) located in Atlantis, South Africa, has been undertaken to prove a historical correlation between inventory developments and a deterioration in the net cash position. Based on that finding, a case specific set of key performance indicators (KPI) has been developed in order to measure improvements in inventory management measures and their impact on cash flow.
Open Access
A comparison of the returns of 'Regulation 28' compliant and non-compliant funds in South Africa
(2015) Noland, Stuart; West, Darron
The shift from defined benefit to defined contribution plans has exposed pensioners to a number of new risks which the South African government has been encouraged to mitigate through the aggressive implementation of retirement fund regulations. This study specifically focuses on the effect of asset allocation restrictions. The effect of these regulations is critically evaluated by comparing the long-term effects of both excess returns and risk-weighted returns of Regulation 28 compliant funds, to fully discretional non-compliant portfolios. With a population of 27 compliant funds and 21 non-compliant funds, it was found that while mean excess long-term return of non-compliant funds consistently outperforms compliant funds, there is no significant statistical difference between the two data sets. Additionally, while regulations successfully reduce the variation of excess returns of the compliant funds relative to the noncompliant funds, and the mean risk-weighted performance of compliant funds consistently outperformed non-compliant funds during the latter parts of the scoped period, no significant statistical difference was identified between compliant and non-compliant investment funds.
Open Access
Determinants of audit fees of listed South African companies
(2015) Davidson, Dhanyal; West, Darron
This paper identifies the statistically significant determinants for audit fees in the South African market by regressing audit fees against a selected set of determinant variables. This study is not the first investigating the South African market and so broadens the existing body of research both within the country as well as the global body of research. Determinant variables identified in prior research across the globe were used to establish the existence of a relationship in the local market. This study further extended the local body of research by considering the implication of audit timing and location on the audit fee as well as using more recent data. A positive statistically significant relationship was found between audit fees, asset value, proportion of assets held as inventory and accounts receivables and the number of subsidiaries. In contrast to prior local research, results showed that a large audit firm fee premium did not exist. This was shown to be due to the commoditisation of auditing, cost pressures from companies and increased competition within the audit market. Audits within the Gauteng region were priced at a premium to other provinces whilst the timing of the audit has a statistically significant impact on the audit fee. The validity of the model has improved in comparison to prior South African studies as a result of audit fees being further driven by audit complexity than by size of the auditee.
Open Access
The disposition effect in South African Equity markets
(2014) Bashall, James; West, Darron; Willows, Gizelle
The “disposition effect” describes the propensity for investors to realise gains sooner than losses through selling profit making investments more readily than loss making investments. This behaviour has been observed in financial markets across the world and across all investor classes, albeit to varying degrees. Such trading behaviour has been found not to be profit or utility maximising. I n the absence of rational motives for the disposition effect, it is concluded as being an irrational feature of investor trading behaviour. In search of the reason behind this behaviour, behavioural finance is turned to. No concrete justification for the disposition effect has been isolated as being the sole cause for this apparently irrational trading behaviour. This study tests for the disposition effect in a South African context across two classes of non-professional investors: those acting in their own capacity, and those acting with the assistance of professional investment advisors. The trade history of a sample of 4 840 investor accounts from a South African stockbroker was analysed over the five year period from October 2008 to October 2013. Three primary issues were addressed: (i) whether South African investors exhibit the disposition effect, (ii) if this behaviour is reduced by non-professional investors through the employment of professional advice, and (iii) if this trading behaviour can be justified based on rational g rounds in a South African context. The results showed, consistent with studies elsewhere in the world, that individual investors in South Africa do exhibit the disposition effect both when acting in their own capacity and when acting with the assistance of professionals . Investors acting with the assistance of professional advisors are found, however, to show the effect to a lesser extent. Further, trading consistent with the disposition effect by investors acting with the assistance of professional advisors is found to be rationally justifiable on the grounds of portfolio rebalancing. It is therefore concluded that professional advice reduces the extent to which this irrational trading behaviour is exhibited, thereby increasing investor profits and utility.
Open Access
Do macroeconomic variables explain future stock market movements in South Africa?
(2011) MacFarlane, Andrew; West, Darron
This study aims to address the empirical question of whether macroeconomic variables drive future stock market returns in South Africa. If found, the macroeconomic variables would therefore constitute useful predictive information for the future FTSE/JSE All Share Index. The data was examined from 1965 to 2010 which constitutes the longest study of its nature in South Africa. The macroeconomic variables were selected based on international and local precedent of intuitive influential macroeconomic factors. Through the use of Johansen multivariate cointegration, Granger causality and innovation accounting, it was found that the selected South African macroeconomic variables did not significantly influence future FTSE/JSE All Share Index returns. Therefore the chosen macroeconomic variables should not be used as a future predictive tool for South African stock market returns.
Open Access
Economic growth, entrepreneurship and venture capital in South Africa
(2012) Snyman, Hendrik; West, Darron
Within the private equity spectrum of investment stages, venture capital and early stage investments are heralded as critical where it has been shown that an increase in private equity early-stage investments of 0.1% of GDP is associated with an increase in real economic growth of 0.96% (Meyer, 2010). This dissertation suggests that within the South African private equity industry fund managers are preoccupied with competing for later stage investments. The study also proposes that the early stage private equity spectrum is severely under-represented in South Africa. Even though there is a healthy distribution between investors as well as the stage of investment they prefer within venture capital, the study suggests that the lack of total funds committed to early stage investments could be a limiting factor for job creation and economic growth.
Open Access
Evaluating the Effectiveness of the Piotroski F_Score Methodology within the South African market
(2013) Pullen, Nicholas John; West, Darron
This study examines whether the Piotroski F_Score (2000) investment strategy framework is able to be replicated within the South African context. Prior work by Atwood (2012) concluded that whilst a High F_Score portfolio was able to outperform a Low F_Score portfolio, it was however not statistically significant over the selected period. This study expands prior research and provides empirical evidence that a modified High F_Score investment strategy is able to outperform both the market and a Low F_Score portfolio over the medium and long-term. These results suggest that it is possible to use accounting-based information to construct a portfolio which is able to shift an investor's distribution of returns, and thereby generating positive abnormal returns within the South African context.
Open Access
Exploring a South African solution to an international concern over auditor independence: The South African audit profession's opinions with regard to mandatory audit firm rotation
(2016) Harber, Michael; West, Darron; Willows, Gizelle
The provision of assurance services, most notably the audit function, is an activity of public protection that requires a high degree of independence between the auditor and the audit client to ensure audit quality is achieved. Internationally, especially in the European Union, there is a legislated move towards mandatory audit firm rotation (MAFR) to ensure auditor independence. South Africa is currently faced with the decision of whether to change legislation and follow suit. Using a qualitative and descriptive methodology, through the use of semi-structured and open interviews with experienced South African audit partners, the direct and indirect effects of mandatory firm rotation on the audit profession was explored. This study will therefore present the opinions of the regulator and a small group of experienced audit partners, most being regional or national managing partners, from audit firms that perform public interest entity audits. Of particular interest will be the opinions of the respondents around (1) the state of independence in South Africa, (2) whether mandatory audit firm rotation will increase audit quality, (3) whether there are better alternatives to mandatory audit firm rotation, and (4) what the perceived direct and indirect effects of mandatory rotation will be within the South African legal and regulatory context. A particular emphasis is also placed on the argument from the national audit regulator that mandatory audit firm rotation, in addition to strengthening independence, will also reduce market concentration (promote competition) in the South African audit industry, as well as promote black economic transformation. The results show significant disagreement by the audit practitioners against the arguments in favour of mandatory audit firm rotation, with most claiming that it will not achieve an increase in audit quality and will produce many unintended consequences that will in their opinion actually reduce audit quality. There is a significant amount of agreement amongst the audit partners on the key issues and no partner interviewed is fully in favour of changing legislation to require MAFR. A number of alternative means for improving audit quality are suggested, which in the opinion of many of the partners, will be less damaging to audit quality and the audit profession.
Open Access
Factors influencing investment decision-making before and after an informative Emotional Intelligence Intervention
(2018) Lewis, Ashwill; West, Darron
A significant body of research exists in psychology pertaining to the various biases which influence human decision-making. A growing body of knowledge on the understanding of decision-making in an investment setting has been established over the last 30 or so years. The objective of this study is to understand the factors influencing investment decision-making, before and after an emotional intelligence intervention. This study places the focus on the most common cognitive psychological biases which may affect investment decisionmaking, by establishing these biases in behavioural finance under the theoretical literature review. The research is scoped in the form of a case study. Two survey questionnaires were deployed on a sample of investment professionals within the vicinity of the city of Cape Town. The questionnaires seek to establish whether participants exhibit common cognitive psychological biases by phrasing questions in both investment and non-investment scenarios. On completion of the first questionnaire, each participant read an informative article on the subject of emotional intelligence and the development thereof before proceeding to the second questionnaire. The objective of this article is to make participants aware of, and create an understanding of emotional intelligence and the development thereof. The results of both questionnaires were analysed to establish whether participants exhibit any change in their responses. The analysis confirmed varied results for the biases considered. Whilst participants appeared to exhibit higher prevalence of availability and anchoring bias post the emotional intelligence intervention, participants exhibited lower indications of herding, self-control & mental accounting bias post the emotional intelligence intervention. Participants appeared equally loss-averse in both questionnaires. Therefore, in summary, the results show that, at least to some extent, the participants exhibited the biases considered, and after the introduction of the construct of emotional intelligence and the development thereof, a change in most of the responses were noted. By design, the scope of this study and the sample size observed does not make it possible to extrapolate these results beyond the sample group. However, the results positively demonstrate a solid basis for future research on the measured impact of an emotional intelligence intervention on investment professionals and the role of emotional intelligence and consequent bearing thereof on investment decision-making.
Open Access
Hedge fund factorisation and benchmarking: Understanding hedge fund performance, benchmarking and the reward system for hedge fund managers
(2021) Govender, Nishlen; West, Darron
Hedge funds give portfolio managers access to more tools to aid in better portfolio construction. The introduction of tools such as leveraging and shorting provided managers with the ability to augment exposures to different asset classes. The result is the ability to create portfolios with uncorrelated returns without having to invest in a plethora of asset classes thus providing better risk adjusted returns. This paper tests whether hedge funds in fact contain less exposure to individual asset classes than their long-only counterparts. In particular, the perception of uncorrelated returns has led to hedge funds being benchmarked against absolute return targets while charging performance fees higher than the typical long-only fund. If hedge fund returns are correlated with those of the asset class in which they invest, the available risk premia available in that asset class may drive returns more than manager skill. In circumstances where hedge fund returns are in fact correlated with asset class returns, then the benchmarks used to measure hedge fund performance ought to capture the perpetual risk premia of the asset classes for better performance measurement and performance fee rewards. This dissertation closely follows Hasanhodzic and Lo (2007) who sought to find the quantum of hedge fund returns attributable to asset class returns; that information was then used to create low-cost clones of typical hedge fund strategies. This dissertation also tested the strength of the relationship between hedge fund and asset class returns but used the result to build linear clones for benchmarking rather than as an alternative to hedge funds. What also distinguishes this dissertation is the jurisdiction: Hasanhodzic and Lo (2007) examined global hedge funds while this dissertation focusses on the South African hedge fund industry. The HedgeNews Africa database is the data source for South African hedge fund returns (from some 412 funds though only 160 of those are currently active). Database returns existed for the period June 1998 to June 2020. The regression assessment conducted regressed the returns of various hedge fund strategies against the returns of the relevant asset classes. The result of the regressions reveals significant coefficients relating to different asset class independent variables. The significant relationships accord with the logical association of certain hedge fund strategies with particular asset classes. For instance, equity long-short funds had a large and significant coefficient relative to equity market returns. Based on the regressions, clone benchmark portfolios were created which performed similarly to the various strategies in the ex-ante period from January 2019 to 2020. This lends credence to the idea that better benchmarks can be specified for hedge fund managers.
Open Access
Herding behaviour by South African unit trusts in the consumer services sector
(2017) Abramson, Simone Nicole; West, Darron; Willows, Gizelle
This study examines whether there is herding by general equity unit trusts as investors in the consumer services sector in South Africa. It also investigates whether herding was more prevalent during the financial crisis period in South Africa between 2008 and 2010, than during a non-crisis period. Using a herding measure developed by Lakonishok, Shleifer and Vishny (1992) (LSV), it was found that there was indeed herding behaviour by general equity unit trusts in the consumer services sector. A herding rate (i.e. the proportion of trades by general equity unit trusts in the consumer services sector in excess of the expected random and independent proportion) of 7.75% is calculated. Possible reasons for herding in the consumer services sector include; consumer services companies being profitable investments and a small number of investment analysts in South Africa. It was also observed that herding behaviour was not more prevalent during the financial crisis period (12.14%) than the non-crisis period (6.36%), as these two periods were not statistically different from one another, even though the average herding rates differed.
Open Access
Herding by South African Equity Unit Trusts: An analysis of the causes and extent of herding behaviour on the JSE Limited
(2022) Wagenvoorde, Guy; West, Darron
This dissertation examines whether South African equity unit trusts follow each other into and out of the same shares (i.e., herd), and specifically whether such herding is motivated by intent. This dissertation ascertained intent by observing the interaction of correlated trading behaviour and states of the general equity market, controlled for conditions that drive spurious correlation; namely, net fund flows and momentum/ share size trading strategies. Employing the Sias measure, the empirical results reveal strong evidence of equity unit trust herding at the individual share-level for the period December 2012 – March 2020. This dissertation further examined the reputational and informational herding hypotheses and provided evidence that unit trust managers' reputational/career concerns, as well as informational incentives contributes to unit trust herding in shares, with aggregate herding 19% more prevalent in down markets than in up markets, 36% more in low relative to high market return states, 12% more prevalent in volatile markets than in tranquil markets, and 30% more in increasing relative to decreasing market volatility states. However, this dissertation found only statistically weak evidence of herding motivated by intent under varying market states. Furthermore, there is evidence that South African equity unit trusts follow other unit trusts in large capitalisation shares (after controlling for “blue-chip” benchmark herding) and unit trusts tend to follow their own trades in small cap shares. In sum, the results provide strong evidence of herding across the unit trust industry, but this is not conclusively predicated by intent.
Open Access
The influence of the stock market on corporate investment
(2016) Armand, Rayanne; West, Darron
This paper investigates how corporate investment is influenced by the non-fundamental component of stock prices. Previous research conducted has found that investment is sensitive to equity mispricing where both the stock is undervalued and the firm is dependent on equity. Under these conditions the firm would need to issue undervalued equity to fund new investment. The suggestion is that the investment behaviours of equity dependent firms display a stronger correlation to stock prices than firms that are not dependent on equity. It is of particular interest to investigate the effect of equity-dependence on corporate investment in South Africa as developing economies often do not have access to debt due to under-developed credit markets.
Open Access
Invest like a woman: an analysis of investment performance in South Africa based on gender
(2014) Marszalek, Bartosz; West, Darron; Willows, Gizelle
The rise in popularity of behavioural finance has illustrated how investors do not always act and invest rationally, and as such do not always maximise their utility. Researchers in the field of behavioural finance have found that certain behavioural biases that exist in humans can explain these deviations from rationality by investors, and that certain biases manifest differently between male and female investors. Men have been found to be more overconfident in their skill in investing than women, and to rate their chances of investing successfully as greater than women rate their chances of investing successfully. Further, men have been found to display higher risk tolerances than women, stronger self attribution and self-efficacy biases, as well as a propensity to overtrade when compared to women.
Open Access
An investigation into performance persistence amongst South African general equity unit trusts funds - for the period 2000 to 2011
(2012) Thomas, Shawn; West, Darron
This paper updates aspects of the original study done by Collinet in his 2001 UCT Masters Thesis “Characterising Persistence of Performance amongst South African General Equity Unit Trusts”, in which he tested performance persistence over the period 1980 to 1999. This updated study focuses on testing whether the performance of a unit trust fund in one period can be used to predict the performance of that unit trust fund in a subsequent period. The overall results of the updated study were comparable to the Collinet (2001) study, although in the Collinet study evidence of short-term performance persistence was found when holding periods of 6 months were tested. The results for the 1, 2 and 3 year holding periods tested were inconclusive and no evidence was found that performance persists over any of those holding periods...